The simple induced innovation model posits that relative factor prices alone determine the direction of the process of technological change. This position is too simplistic in that it ignores many other factors that may influence the direction of the process of technological change. Such factors include relative output prices, the need to solve technological problems that arise, science and the supply of the process of technological change, the process of institutional change and the diffusion process. These factors are analysed in the thesis in the light of an alternative fundamental perspective, which borrows the ideas of information and institutional economics and employs these ideas within a biological framework.